Sunday, February 22, 2009

In accounting, the inventory turnover ratio displays how many times inventory was sold or turned over by a company during a fiscal year. The equation for inventory turnover is listed below:

Inventory Turnover Formula:

Inventory Turnover= COGS/Inventory

The inventory turnover ratio is normally compared with firms operating in the same industry. A low turnover ratio typically poor sales performance and excessive amounts of unsold inventory. On the other hand, a high turnover ratio represents strong sales or under-purchasing by the company.